Report — From the November 2016 issue

“Don’t Touch My Medicare!”

Is the beloved program on its last legs?

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So far, privatization remains the more politically correct solution for Medicare’s financial shortfalls. These are real, at least potentially. In large part, they have been caused by the lack of serious cost controls, and exacerbated by the influx of millions of baby boomers needing medical services. Even the government’s attempts at cost control introduced during the Reagan era failed to permanently curb medical inflation. Indeed, containing the prices charged by the doctors, hospitals, drug makers, nursing homes, and home-care agencies that rely on the Washington gravy train has been an almost impossible task. The 2003 prescription-drug law, for example, prohibits Medicare from negotiating the prices it pays for drugs. “There are obstacles statutorily and politically,” says former Medicare administrator Don Berwick. “We can’t negotiate for purchasing, in one of the largest insurance systems in the world. The moneyed interests are calling the shots.”

Many of those moneyed interests sell health-care technology, which has long been a major cause of exploding costs. Richard Foster, who was Medicare’s chief actuary from 1994 to 2013, describes the situation: “As long as there’s an automatic market for new technology, even if it’s not any more effective, cost growth will keep going up.” In fact, Medicare has historically not considered cost effectiveness when deciding whether to cover new drugs and technologies. Two years ago, a study published in JAMA Internal Medicine revealed that Medicare spent $8.5 billion for low-value services—CT scans for uncomplicated sinus infections, prostate-cancer screenings for men over seventy-five.

Even when Medicare has limited the use of technologies, health providers sometimes use them anyway. In the past year, for example, the Justice Department has announced settlements with 508 hospitals that had used implantable cardioverter defibrillators in some 10,000 patients. The DOJ fined the hospitals—including some of the biggest names in the business, such as the Cleveland Clinic and NewYork-Presbyterian—for violating Medicare’s “national coverage determination” for I.C.D.’s. According to Sanket Dhruva, a cardiologist and researcher at Yale, these patients may also have been subjected to unnecessary harm. So why were hospitals using the devices? Because they were, needless to say, hugely profitable—between 2010 and 2015, when news of the investigation caused I.C.D. use to drop 28 percent, Medicare saved about $2 billion.4

4 The saga of I.C.D.’s is far from over. Michael Gold, president of the Heart Rhythm Society, a professional organization for doctors who specialize in cardiac arrhythmias, said the DOJ settlement was disappointing. Insisting that the guidelines are outdated, the group is now pushing for reconsideration of Medicare’s national coverage determination to give doctors more “flexibility”—a euphemism for more money. It has been reported that Medicare is reviewing its decision.

The pharmaceutical companies are equally adept at gaming the system. Over the past few months, cancer doctors and arthritis specialists have waged a very public fight to scare patients into believing they aren’t going to get expensive Part B drugs. Medicare pays 80 percent of the cost of these drugs, which are typically administered in physicians’ offices. But the current system, which Medicare wants to change, pays doctors a percentage-based profit, which encourages them to use more expensive drugs. “Doctors are carrying water for the pharmaceutical corporations because their interests are aligned,” says Peter Bach, the director of the Center for Health Policy and Outcomes at Memorial Sloan Kettering, in New York City. “I know of no other system where raising the price of your product makes it more attractive.” Medicare recently reported that the total cost of prescription drugs for its 38 million beneficiaries rose 17 percent in 2014, even though the number of claims rose only 3 percent.

Insurers get their way, too, when it comes to protecting Medicare Advantage plans. In March, the government quietly changed the regulations for its widely touted MA star-rating system so that Cigna, one of the country’s largest insurers, could continue receiving the bonuses that are awarded for higher ratings. Two months earlier, as it happens, Medicare had sent the company a strong letter of sanction citing “serious violations” and barring the carrier from enrolling new members. The letter said that beneficiaries had experienced inappropriate delays and denials of medical services and medications, received inaccurate and incomplete information, and been denied timely resolution of requests for coverage—infractions that hardly suggest a plan meriting four or five stars. Cigna was in danger of losing as much as $350 million in bonuses. Then came the rule change—and two days later, a 2 percent surge in the value of Cigna stock.

According to the Center for Public Integrity, MA sellers collected nearly $70 billion between 2008 and 2013 by overstating patients’ health risks. In May, the General Accountability Office issued a report showing that Medicare often failed to audit private health plans and recoup overpayments. The GAO called for “fundamental improvements” in Medicare’s operations.

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last wrote for Harper’s Magazine on the Affordable Care Act, in the July 2015 issue.

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